January 2008

A tap which used to provide free water for the residents of Manzese Squatter area and has been closed by the private water company, City Water.

This week, a London tribunal operating under the laws of United Nations Commission on International Trade Law (UNCITRAL), threw out a case against Tanzania brought by City Water Services, a subsidiary of British company Biwater. The tribunal consequently awarded the Tanzanian government $6 million in damages, and $1 million in legal costs.

The ruling is a small victory in a complex legal battle still being fought in other courts. It however vindicates the Tanzanian government, which terminated City Water’s contract to run water system in Dar es Salaam in 2005 after poor performance. It also vindicates local and international campaigners who are against water privatization plans in poor countries.

Despite public outcry that water supply should never be privatized due to its sensitive nature, Dar es Salaam’s public water utility company, DAWASA, handed over its operations to City Water in 2003 with the expectation that the approximately 3 million residents of Dar es Salaam will get improved water supply. Instead, within the 2 years of City Water, water availability in the city actually got worse compared to DAWASA days.

According to the London based Water Development Movement, “water privatisation was imposed on that country [Tanzania] by the World Bank in return for much needed debt relief”. Another campaign group, Food and Water Watch stated that, “Biwater benefited from a non-competitive contract process and financial backing from the World Bank [as well as the UK government], but it still managed to mismanage the project”.

Ruling is expected anytime this year in a separate legal case lodged by Biwater at the International Centre for the Settlement of Investment Disputes (ICSID) against the government of Tanzania. The case is being held in secrecy at The Hague and is thought to involve a claim for approximately US$20 million.

The negative experience in Tanzania is not an isolated case. In many poor countries, for example, Bolivia, Mali and The Gambia, water privatisation has consistently failed to deliver clean, affordable water to the poor.

President Jakaya Kikwete yesterday fired the Governor of Bank of Tanzania (BOT), Daudi Balali, after an audit investigation uncovered fraudulent transactions involving the repayment of the country’s external debt.

A press release from Ikulu (State House) stated that “the president has been deeply angered and disappointed with what has happened” at the central bank, and acted to “revoke” Balali’s appointment after he received a damning audit report prepared by the global accounting firm, Ernest and Young, that revealed more than $116 million had been improperly paid to 22 firms through BOT’s external payment arrears account (EPA) in one financial year alone.

The EPA account was originally set-up the Government to help service balance of payment, whereby local importers would pay into the account in local currency and foreign service providers would then be paid back by BOT in foreign currency. However, due to poor foreign currency availability in 1980s and 1990s, the debt within the account ballooned to $677 million by year 1999. Efforts under Debt Buyback Scheme and cancellations negotiated under Paris Club helped to reduce the debt level to $233 million in 2004.

Despite these efforts, unscrupulous officials and businesses were able to take advantage of one of the plans devised to reduce the account debt, whereby a creditor could endorse debt repayment to a third party. The audit report, sanctioned by the Government’s Controller and Auditor General (CAG) covering Bank of Tanzania’s 2005/2006 financial books, revealed that 13 companies used falsified records and claimed third party status and received BOT payments, while 9 companies couldn’t substantiate payments they received. Among these, 2 companies were not even registered by BRELA – Business Registrations and Licencing Agency. These companies are owned and operated by some of the most prominent business people in Tanzania.

Daudi Balali has been Governor since 1998. The President replaced Balali with one of his two deputies, Prof. Beno Ndulu, who before joining BOT was a senior official at World Bank offices in Tanzania and lectured at the University of Dar es Salaam. Recent media reports claimed that Balali, (who has been out of the country for a couple of months now since the investigation started — reportedly in Boston, USA for medical reasons), had written a letter of resignation, but no one in the Government was ready to confirm receipt of the letter, even after some newspapers published its entire contents.

In his most brutal crackdown on corruption ever since he came to office in 2005, President Kikwete also directed the Attorney General, the Inspector General of Police and the Director of anti-corruption bureau to take appropriate legal steps to bring to justice all the individuals and companies implicated in the EPA scandal. He also directed the Board of Directors of the central bank to study the report and take appropriate reprimand actions to all Bank officials involved in the scandal.

The scandal started after Controller and Auditor General (CAG) finished its annual auditing of BOT books in August of 2005. Following a public outcry that was echoed by the Bunge (National Parliament) and the IMF over the findings, the President and CAG ordered an external investigation conducted by Ernest and Young from September to December of last year. The public had been eagerly waiting for the contents of the audit report to be made public. It is still unclear if there will be investigations of BOT accounts in years prior to 2005/2006. Concurrently, Bank of Tanzania has been dogged by another investigation over the inflated cost of constructing the Bank’s headquarters, the Dar es Salaam’s 20 storey Twin Towers pictured above, which cost $25.48 million according to Group Five construction company).

What are your thoughts on this scandal and the way President Kikwete has reacted to the report? What do you think should be Balali’s fate? Should he be arrested and put to jail? Who else would you like to see taken to task? Please leave your comments.